Company Name: Pfizer Inc. (Recon.)
Public Availability Date: March 8, 2006
Document Sections:
INQUIRY LETTER
INQUIRY LETTER
APPENDIX
INQUIRY LETTER
[INQUIRY LETTER]
February 21, 2006
VIA HAND DELIVERY
Nancy Morris, Secretary
Office of the Secretary
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
Re: Request for Commission Review by Pfizer Inc. Shareholder Proposal of the
AFL-CIO Reserve Fund Securities Exchange Act of 1934Rule 14a-8
Dear Ladies and Gentlemen:
Pfizer Inc. ("Pfizer") respectfully requests that the Securities and Exchange
Commission (the "Commission") review the response of the staff of the Division
of Corporation Finance (the "Staff"), dated February 8, 2006 (the "Staff
Response") to Pfizer's correspondence of December 16, 2005, notifying the Staff
of its intention to omit, pursuant to Rule 14a-8(j), a shareholder proposal (the
"Proposal") submitted by the AFL-CIO Reserve Fund (the "Proponent"). The
Proponent submitted the Proposal for inclusion in Pfizer's proxy statement and
form of proxy for its 2006 Annual Meeting of Shareholders (collectively, the
"2006 Proxy Materials").
The Staff Response is appropriate for review by the Commission pursuant to 17
C.F.R. §202.1(d), because it involves both "matters of substantial importance"
and "novel or highly complex" issues. In this regard, the Staff Response
narrowly interprets the "substantially implemented" standard of Rule
14a-8(i)(10) in a manner that is inconsistent with the history, purpose and
application of the Rule. Therefore, we respectfully request that the Commission
review and reverse the Staff Response in accordance with the standards set forth
in 17 C.F.R. §202.1(d).
BACKGROUND
I. The Proposal
The Proposal requests that Pfizer's Board of Directors (the "Board") "seek
shareholder approval of any senior executive's annual pension benefit from
Pfizer's supplemental executive retirement plans that will exceed 100 percent of
the senior executive's final average salary, as calculated at the Board's
discretion. This policy shall apply to senior executives' existing pension
benefits only if they can be legally modified by Pfizer, and will otherwise
apply to all new pension benefits to the fullest extent permitted by law."
II. Pfizer's Request for No-Action Relief
On December 16, 2005, Pfizer filed with the Staff a letter requesting that the
Staff concur that Pfizer could properly exclude the Proposal from its 2006 Proxy
Materials (the "Pfizer Request"). A copy of the Pfizer Request, including the
Proposal and our supplemental correspondence dated December 27, 2005 and January
24, 2006, is attached hereto as Exhibit A. The Pfizer Request stated that the
Board approved a policy on pension benefits for executives (the "Pfizer Policy")
that in all material respects is identical to the Proposal, and thus,
substantially implemented the Proposal. The Pfizer Policy, attached hereto as
Exhibit B, is as follows:
The Board will seek shareholder approval prior to the payment to any senior
executive from the Company's defined benefit pension plans if his or her
benefit, computed as a single life annuity, will exceed 100% of the senior
executive's final average salary, as calculated at the discretion of the
Company's Compensation Committee. This policy will apply prospectively, for all
benefit accruals after January 1, 2006. For purposes of this policy, "final
average salary" means the highest five calendar years' earnings, where earnings
includes salary earned during the year and annual cash incentives (or bonus)
earned for the year.
Accordingly, the Pfizer Request asked the Staff to concur that the Proposal was
excludable pursuant to the substantially implemented exclusion in Rule
14a-8(i)(10).
III. The Staff's Response
On February 8, 2006, the Staff issued its response to the Pfizer Request, noting
that "[w]e are unable to concur in your view that Pfizer may exclude the
proposal under rule 14a-8(i)(10)." The Staff Response, attached hereto as
Exhibit C, did not include any explanation.
ANALYSIS
I. Review by the Commission Is Warranted Because the Pfizer Policy
"Substantially Implements" the Proposal to the Extent Permitted by Law
When a company can demonstrate that it has already adopted policies or taken
actions to address each element of a shareholder proposal, the Staff has
concurred that the proposal has been "substantially implemented" pursuant to
Rule 14a-8(i)(10) and may be excluded. See, e.g., Intel Corp. (avail. Mar. 11,
2003) (concurring that a proposal requesting that Intel's board submit to a
shareholder vote all equity compensation plans and amendments to add shares to
those plans that would result in material potential dilution was substantially
implemented by a board policy that excepted certain awards from the policy);
Nordstrom, Inc. (avail. Feb. 8, 1995) (concurring that a proposal requesting a
report to shareholders on Nordstrom's relationship with suppliers and a
commitment to regular inspections was substantially implemented by existing
company guidelines and a press release, even though the guidelines did not
commit the company to conduct regular or random inspections to ensure
compliance).
As noted above, the Proposal requests that the Board "seek shareholder approval
of any senior executive's annual pension benefit from Pfizer's supplemental
executive retirement plans that will exceed 100 percent of the senior
executive's final average salary, as calculated at the Board's discretion." The
Pfizer Policy substantially implements the Proposal's request because in all
material respects it is identical to the Proposal: both the Proposal and the
Pfizer Policy provide for shareholder approval of any senior executive's annual
pension benefit from Pfizer's supplemental executive retirement plans that will
exceed 100% of the senior executive's final average salary, without regard to
existing benefits, which cannot legally be reduced. As more fully described in
our previous submissions, attached hereto as Exhibit A, we believe that any
differences between the Pfizer Policy and the Proposal are inconsequential to
the substantial implementation of the Proponent's request that our Board adopt a
policy to seek shareholder approval when awarding any senior executive's annual
pension benefits exceeding 100% of his or her final average salary. First, the
Pfizer Policy applies only prospectively to benefit accruals after January 1,
2006, because Pfizer is not legally able to do otherwise. The Proposal itself
acknowledges that it shall apply to existing benefits only to the extent
permitted by law. Second, both the Pfizer Policy and the Proposal use the term
"final average salary." The Pfizer Policy defines the term consistent with its
typical use in pension plans, as consisting of salary earned during the year and
any bonus earned for the year. This is, in fact, consistent with the Proponent's
own description of supplemental retirement plans on its website. Thus, we
believe that, as a result of adopting the Pfizer Policy, Pfizer has
substantially implemented the Proposal and, therefore, the Proposal is
excludable under Rule 14a-8(i)(10).
II. Review by the Commission Is Warranted Because Denial of No-Action Relief Is
Inconsistent with the History, Purpose and Application of Rule 14a-8(i)(10)
The purpose of the substantially implemented exclusion, as articulated by the
Commission, is "to avoid the possibility of shareholders having to consider
matters which have already been favorably acted upon by the management." See
Proposed Amendments to Rule 14a-8 under the Securities Exchange Act of 1934
Relating to Proposals by Security Holders, Exchange Act Release No. 12,598 (July
7, 1976) (hereinafter, "The 1976 Release"). In the case of the Proposal, the
Pfizer Board has adopted the Pfizer Policy, pursuant to which the Board will
seek shareholder approval of payments under Pfizer's defined benefit pension
plans if the payment amount will exceed 100% of the senior executive's final
average salary. Thus, the Board has acted favorably upon the matter so that
there is no need for Pfizer's shareholders to have to consider the Proposal.
We are concerned that the Staff Response reflects a "formalistic" approach to
the substantially implemented exclusion that the Commission has rejected. A
recitation of the administrative history of Rule 14a-8(i)(10) is illustrative.
In 1976, the predecessor to Rule 14a-8(i)(10) was proposed by the Commission in
order to codify a policy that had been implied by the Staff as a ground for
exclusion, but which had not been specifically stated in the Rule. See The 1976
Release. The proposed rule provided that a company could exclude a shareholder
proposal from its proxy statement "if the proposal had been rendered moot." The
1976 Release. Following adoption of the Rule, the Staff narrowly interpreted the
exclusion by granting no-action relief only when proposals were "fully effected"
by the company. See Proposed Amendments to Rule 14a-8 under the Securities
Exchange Act of 1934 Relating to Proposals by Security Holders, Exchange Act
Release No. 19,135 (Oct. 26, 1982).
By 1983, the Commission expressed concern that the "previous formalistic
application of [the Rule] defeated its purpose" because proponents were
successfully convincing the Staff to permit inclusion of proposals when the
policy or practice implemented by the company differed from the proposal by only
a few words. See Amendments to Rule 14a-8 Under the Securities Exchange Act of
1934 Relating to Proposals by Security Holders, Exchange Act Release No. 20,091,
at §II.E.5. (Aug. 16, 1983) (hereinafter, "The 1983 Release"). Therefore, the
Commission adopted a change from the Staff's previous interpretation of the
exclusion in order to allow companies to exclude proposals that had been
"substantially implemented." The 1983 Release. The Commission acknowledged at
the time that this interpretive change would "add more subjectivity to the
application of the provision" but believed that the revision was necessary in
order for the Staff to move away from the exclusion's strict application. The
1983 Release. In 1998, when the current Rule 14a-8(i)(10) was adopted, the
"substantially implemented" language was included in the Rule in order to
reflect the Commission's interpretation adopted in The 1983 Release. See
Amendments to Rules on Shareholder Proposals, Exchange Act Release No. 40,018
(May 21, 1998).
We believe that denying Pfizer's request for no-action relief under Rule
14a-8(i)(10) is inconsistent with the Rule and with the Commission's express
intent in adopting the "substantially implemented" standard. In denying
no-action relief to Pfizer, the Staff appears to be returning to the
previously-rejected "formalistic" approach of requiring total compliance with a
proposal in order to rely on the Rule 14a-8(i)(10) exclusion.
CONCLUSION
Based upon the foregoing analysis, we respectfully request that the Commission
review the Staff Response pursuant to 17 C.F.R. §202.1(d) because it involves
both "matters of substantial importance" and "novel or highly complex" issues
for the reasons set forth above. Pursuant to Rule 14a-8(j), enclosed herewith
are six copies of this letter and its attachments. Consistent with the
provisions of Rule 14a-8(j), we are concurrently providing copies of this
correspondence to the Proponent. As Pfizer will begin printing its 2006 Proxy
Materials on March 6, 2006, we respectfully request that we be notified of the
Commission's decision prior to that date.
If we can provide additional correspondence to address any questions the
Commission may have with respect to this appeal, please do not hesitate to call
me at (212) 733-4802.
Sincerely,
/s/
Margaret M. Foran
Enclosures
cc: Brandon Rees, AFL-CIO Reserve Fund
Christopher Cox, Chairman
Cynthia A. Glassman, Commissioner
Paul S. Atkins, Commissioner
Roel C. Campos, Commissioner
Annette L. Nazareth, Commissioner
Alan L. Beller, Director, Division of Corporation Finance
Martin Dunn, Deputy Director, Division of Corporation Finance
[INQUIRY LETTER]
September 9, 2005
By Facsimile and UPS Next Day Air
Margaret M. Foran
Vice PresidentCorporate Governance and Secretary
Pfizer, Inc.
235 East 42nd Street
New York, NY 10017-5755
Dear Ms. Foran:
On behalf of the AFL-CIO Reserve Fund (the "Fund"), I write to give notice that
pursuant to the 2005 proxy statement of Pfizer, Inc. (the "Company"), the Fund
intends to present the attached proposal (the "Proposal") at the 2006 annual
meeting of shareholders (the "Annual Meeting"). The Fund requests that the
Company include the Proposal in the Company's proxy statement for the Annual
Meeting. The Fund is the beneficial owner of 4,520 shares of voting common stock
(the "Shares") of the Company, and has held the Shares for over one year. In
addition, the Fund intends to hold the Shares through the date on which the
Annual Meeting is held.
The Proposal is attached. I represent that the Fund or its agent intends to
appear in person or by proxy at the Annual Meeting to present the Proposal. I
declare that the Fund has no "material interest" other than that believed to be
shared by stockholders of the Company generally. Please direct all questions or
correspondence regarding the Proposal to Brandon Rees at (202) 637-3900.
Sincerely,
/s/
Richard L. Trumka
Enclosure
[APPENDIX]
Shareholder Proposal
RESOLVED: The shareholders of Pfizer Inc. (the "Company") urge the Board of
Directors (the "Board") to seek shareholder approval of any senior executive's
annual pension benefit from the Company's supplemental executive retirement
plans that will exceed 100 percent of the senior executive's final average
salary, as calculated at the Board's discretion. This policy shall apply to
senior executives' existing pension benefits only if they can be legally
modified by the Company, and will otherwise apply to all new pension benefits to
the fullest extent permitted by law.
Supporting Statement
We believe that executives should receive retirement benefits in the same
proportions that are generally offered to other employees of the Company. In our
opinion, pension plans are intended to provide senior executives and other
employees with retirement security, not as wealth creation vehicles for already
highly compensated executives.
The New York Times reported that Pfizer Chairman and CEO Henry McKinnell will
receive an ostimated annual retirement benefit of $6.5 million - the largest out
of 500 CEOs studied by the Corporate Library, an independent
corporate-governance research firm. ("The New Executive Bonanza: Retirement,"
New York Times, April 3, 2005). In contrast, Dr. McKinnell received
approximately $2.2 million in salary in 2004.
Unlike many companies' executive retirement plans that are calculated only using
cash compensation. Pfizer's executive pension benefit formula has also included
certain equity compensation awards that were established before 2001. In 2004,
Dr. McKinnell received over $5.8 million in stock awards that will be included
in his pension benefit formula.
Senior executives typleally receive a far greater proportion of their
compensation in the form of variable pay and equity compensation. For this
reason, we believe including these forms of compensation In pension calculations
can disproportionately favor senior executives, and can amount to an
extraordinary retirement benefit.
Although Pfizer has stopped including new stock awards in its pension
calculations, we believe the pension benefits based on past awards should be
rescinded if they would result in an excessive pension benefit for senior
executives. To help ensure that pension benefits for senior executives are in
the best interests of shareholders, we believe such benefits should be submitted
for shareholder approval when they exceed 100 percent of a senior executive's
salary.
A study by Harvard Law School Professor Lucian Bebchuk has estimated that Dr.
McKinnell has received about $67 million in total compensation during his tenure
as Pfizer's CEO. In contrast, the study estimates the actuarial present value of
Dr. McKinnell's expected pension benefit to be approximately $71.5 to $83
million. ("Putting Executive Pensions on the Radar Screen," March 2005. Harvard
Law and Economics Discussion Paper No. 507.)
In our opinion, extraordinary executive retirement benefits undermine the goal
of linking pay to performance. According to Pfizer's 2005 proxy statement,
Pfizer slightly underperformed its competitors over the previons five-year
period. We believe that giving Dr. McKinnell an extraordinary pension benefit
will reward this unexceptional performance.
[INQUIRY LETTER]
March 8, 2006
Margaret M. Foran
Senior Vice President - Corporate Governance,
Associate General Counsel & Corporate Secretary
Pfizer Inc.
235 East 42nd Street
New York, NY 10017-5755
Re: Pfizer Inc. Incoming letter dated February 21, 2006
Dear Ms. Foran:
This is in response to your letter dated February 21, 2006 concerning the
shareholder proposal submitted to Pfizer by the AFL-CIO Reserve Fund. On
February 8, 2006, we issued our response expressing our informal view that
Pfizer could not exclude the proposal from its proxy materials for its upcoming
annual meeting. You have asked us to reconsider our position.
The Division grants the reconsideration request, as there now appears to be some
basis for your view that Pfizer may exclude the proposal under rule
14a-8(i)(10). Accordingly, we will not recommend enforcement action to the
Commission if Pfizer omits the proposal from its proxy materials in reliance on
rule 14a-8(i)(10).
Sincerely,
/s/
Martin P. Dunn
Acting Director
cc: Brandon Res
AFL-CIO Reserve Fund
815 Sixteenth Street, N.W.
Washington, DC 20006
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